CAIRO: State-owned Suez Steel Co., one of the largest net-importers of billets in the market, with the most modern facility in the Middle East region, is finally on sale.
After a year and a half of deliberation, arguments over the conditions of the sale, a close-call crash for the Egyptian industry with the entrance of a Ukrainian billet producer and a large pile of paperwork, the company has officially been put on the market, and 21 companies have purchased the information sheets for its sale.
“A total of 21 companies have purchased the book of information and terms, nine of which are Egyptian companies, six Arab and six international, and all are well-established investors, whether strategically or financially, says Ahmed Sallam, associate, investment banking at HC, the investment bank working as advisors on the transaction.
According to a senior official at Banque Du Caire, who requested anonymity, one of the main reasons behind the delay in placing the company on the market was a dispute over the livelihood of the company’s 419 employees after the sale.
However, in order to preserve the rights of the employees, the government signed a commitment with the bidders stating that they would not lay-off the employees, thus taking care of that looming problem, states Sallam.
“The company is not overstaffed, says Sallam. “So there is no reason to lay-off workers.
According to Sallam, who asserts that the identity of the bidders has been concealed at bidder request, the companies bidding for Suez Steel Co. stand to gain a lot from the sale.
As the largest net importer and the only company to export billets, rather than just manufacture them, the winner can corner the market in Egypt and create a niche for themselves.
“The company has a lot to offer to its bidders, states the senior official at Banque Du Caire. “Aside from it being the most modern facility in the Middle East region and the only exporter of billets in the country, the company stands on 418,000 meters of land, a great space for the winner to either create a new line for the production of billets or an extension to the factory.
The company’s plant, established in 1997, was built when the dollar was valued at LE 3. Now, at LE 5.57, it would cost a lot more to build an entirely new plant of this size or with state-of-the-art facilities similar to those found at the Suez Steel Co.’s plant.
Furthermore, across the street from the factory is a 15,000 meter plot that belongs to the company, which can also be built on.
“In addition, due to the tax law, the winner will not have to pay taxes up until 2010, which is a great incentive to any of the interested parties, says the official.
Perhaps one of the most strategic aspects of the company is its exceptionally close proximity to the Gulf of Suez, located directly on the edge of the land, making exportation that much more feasible.
“The proximity of the company to the Gulf of Suez makes it ideal for sale to investors, states Sallam.
Currently, the company produces 600,000 tons of billets annually. That number, according to the Banque Du Caire source, can be increased with the expertise of the winning bidder. Furthermore, in terms of profits, the company is registering high numbers. In June 2006, the company made LE 16 million in profit in one month. The month before, the company made a profit of LE 4 million.
In terms of exports, presently only 20 to 30 percent of exports go to foreign markets – namely Saudi Arabia, Sudan and Libya. The rest is sold to the domestic market. However, those figures could change depending on the plans of the winning bidder, states the source.
“Maybe they will want to allocate more of the exports to foreign markets; that really is up to them. But most probably they will look for the highest bidder, whether that be in the local or foreign market is yet to be seen, said the official.
In 2005, the company, alongside the local industry, almost “drowned, according to the Banque Du Caire source, with the entrance of a Ukrainian billet producer in the market. The reason for this was that, at the time, the government had dropped the two percent tax imposed on foreign companies, which led to a competitive fervor that nearly succeeded in wiping out the local industry.
The reason they did not sink can be attributed to the quality of the billets they manufacture, which, says the Banque Du Caire source, is of a much higher and stronger quality than that offered by their Ukrainian competitors.
“The truth is, their billets were not up to par with ours, and that was the deciding difference, states the official. “At the end of the day, customers buy into quality, because they know if they don’t, they will end up with the short side of the stick, so to speak.
Suez Steel Co. is owned by Banque Du Caire, which has an 82.13 percent stake in the company, while Misr Insurance Co holds a 3.7 percent stake and National Bank of Egypt has a 0.004 percent stake. The company will be sold as a whole to either one or a group of investors.
According to Sallam, the deadline for presenting offers is August 10. After that, three companies will be short listed and subsequently announced two weeks later.
While the current bidders have not been made public, El Ezz Steel has been quoted as saying that it is one of the bidders and that it will bid aggressively for the company.
